MPs will get a pay rise of 5.5 per cent, the Remuneration Authority has confirmed, which translates to a $8200 pay rise for backbench MPs.
In its determination released this afternoon, the authority said that once a reduction in the travel entitlement was taken into account, MPs' pay packages would be increased by 3.5 per cent.
As a result of the determination, Prime Minister John Key's salary would rise by $23,800 to $452,500.
Cabinet Ministers would receive 283,400, up from $268,500.
The base salary for backbench MPs would rise from $147,800 to $156,000.
The pay rise would be backdated to July, meaning MPs would get an additional lump payment of at least $5000.
Leader of the Opposition Andrew Little's pay packet would increase from $268,500 to $283,400.
In its determination, the authority said the payline for ordinary members increased by 3.3 per cent in 2014.
However, tighter rules around MPs' travel meant their annual entitlement fell to $3200, compared to around $6500 last year.
"Taking into account the change in value of the travel entitlement, this produces a package increase of 3.56 percent and a salary increase for ordinary members of 5.5 per cent," the determination said.
Mr Key said this afternoon he was disappointed in the authority's decision, saying there was no justification for the increase given inflation of 0.8 per cent and average wage growth of around 2.5 per cent.
In last year's determination, the authority pegged the increase at 2.2 per cent, saying it acknowledged the need to restrain public sector spending in the wake of the global economic crisis.
However, authority chair John Errington added that the pay gap between ministers and executives in the private sector was growing and would have to be addressed.
The new salaries are usually announced in November or December, but last year the Remuneration Authority issued only its determination on the travel and accommodation entitlements of MPs, delaying the salary consideration.
The Speaker used to set those entitlements, but the bulk of it has since been put into the hands of the Remuneration Authority. That was to remove politicians from the calculation after sustained criticism and scrutiny over the 'perk' elements of their entitlements, such as international travel subsidies. Those subsidies can now only be used if the trip is at least partly work-related and has the Speaker's approval.
Earlier today, Mr Key said Parliament may change the law on how MPs' pay rates are set in the future, but he won't turn down today's pay rise.
He told reporters this morning that he wrote to the Remuneration Authority early this year urging it not to give MPs a pay rise at all this year, but the authority had given them a pay rise anyway.
Mr Key said it would not be practical for MPs to turn down today's pay rise.
"The money turns up in your account. You could say, 'Well, you could write a cheque or donate it or give it back', but it's just not that practical across 121 MPs."
"What do you do when you get to the next year, and they give you another pay increase? Do we take that one and not the other one?"
However, he wanted the Remuneration Authority to review its systems, but he did not know what a better system would look like.
"What I think the Remuneration Authority should do, if they are going to give a pay increase to MPs, is I think they should point to the law and tell us what in the law is driving the sort of increases that they want to give MPs, and then we should go away and consider whether we think that law is appropriately set," he said.
"In my view it's quite clear that inflation is low, that MPs are by any measure well recompensed, and against that the Remuneration Authority has had the view that ministers are a long way away from chief executives and to other senior people in the private sector.
"But you don't go into politics and become either a minister or a prime minister, or even a backbencher, because you are there for the money. If you do you are there for completely the wrong motivation, so I just don't think that's a relevant comparison in my view."
But Little said Mr Key was crying wolf over his objections to the pay increase.
"The Prime Minister has been saying for five years that the pay should be frozen but he does nothing about it when it's in his hands to do something. I'm certainly happy to sit down with the PM or anybody in Government to talk about solutions."
Mr Little said although the level of increase was in the hands of an independent body, it did reflect on Parliament.
"I think there's a better way of doing it that is more responsible and more in line with public expectations."
Asked if he believed MPs should take back the power to set their own salary, he said that would provide for greater political accountability. "There is none now." However, it would also result in claims MPs were acting in self-interest.
He agreed there was something wrong with the way the salaries were determined. "We have a system which is clearly broken where low income workers get 50c an hour extra because that's what the state says is good and then another branch of the state says MPs should get $9000 a year."
MPs were well paid already and the jobs were not comparable to those of a private sector chief executive or senior executive. Mr Little said he was not consulted on the pay increase and did not know if his predecessor, David Cunliffe, was.
Unite Union national director Mike Treen said earlier today that MPs' pay rise was 10 times the 50c an hour increase in the minimum wage announced yesterday.
"Minimum wage workers got 50c an hour and many of them don't get a guaranteed 40 hours a week - in fact many are on zero-hour contracts and aren't guaranteed any hours.
"New Zealand needs to get its priorities right. Those working what are often tough jobs as minimum wage employees in hospitality, cleaning and fast food companies, who are also often working for some of the biggest companies in the country, deserve a better deal."
The Government has come under intense criticism over its decision to raise the minimum wage for adults from $14.25 to $14.75 an hour.
New Zealand Council of Trade Unions President Helen Kelly said yesterday that it was disrespectful to the families of New Zealand.
"New figures were released for a living wage, with the rate identified at $19.25. The mean-spirited increase announced today means thousands of hard working families facing another year of struggling to make ends meet," she said.
She said the increase would barely cover the loss of two 10 minute tea breaks from March 6.
"Over 300,000 workers are now on or near the minimum wage as collective bargaining rights have been decimated, insecure work arrangements have become widespread and unfettered migration has been allowed to flood low paid, low skill work areas."
Call to action
The rise also comes as the New Zealand Herald is calling on readers to help analyse the donations and expenses' returns for candidates at the 2014 general election.
The Electoral Commission has published returns for all 462 candidates, including all 121 current members of Parliament. Donations and expenses for candidates from the previous 2011 election are also available.
This is an enormous potential dataset and the Herald has uploaded nearly 900 documents to its own microsite, Money in Politics, allowing members of the public to interact with and analyse the data.
Already, the Herald has uncovered a new $25,000 donation to a National Party MP from controversial donor Donghua Liu. However, there are no guarantees more donation scandals will be discovered through this online experiment.
How to help us free the data from PDFs?
Step1: Create a username and then login.
Step 2: Then click on 'Check a document'
Step 3: A document will appear on your screen, please fill out the forms and once you are done, click Send.
Step 4: After finishing a document, you can move on to the next one.